This post is from our regular contributor, Leslye.
A vehicle is one of the main sources of debt for consumers. Part of an effective debt management plan is determining ways to minimize costs so you can either put more money toward debt or contribute to savings to avoid debt in the future.
What if you could eliminate your car payment now and forever? It may not be the obvious expense one might consider removing from your budget, but it can be done is you pay for a car in cash.
However owning a car is much more than the cost of the payment. Maintenance, fuel, insurance all need to be factored into costs. Average annual ownership costs (based on 15000 miles per year) were $8469 per year in 2017. If you’re financing your car, these costs are on top of your monthly payment.
Buying a car in cash isn’t as far-fetched as it may sound. I went 10 years without a car payment and it was amazing. The car I owned the longest was purchased for only $1500 from a private seller.
Now this was by no means a Ferrari. It was a green 1998 Ford Contour I nicknamed ‘Emerald City’, and it was worth every penny. The car lasted five years without any major issues. My other cars didn’t have major issues either. Unfortunately, they were totaled out due to car accidents, which is something you should consider when purchasing a vehicle.
So how do you pay for a car in cash?
Start Saving Money ASAP
Obviously you need to cash to purchase a car in cash. Take your tax refund, annual bonus, and any other lump sum payment you receive throughout the year and place them into a high yield savings account. This also separates your car fund from the rest of your money making it less likely for you to spend it.
You can also look for ways to earn extra money. My friend recently participated in a focus group, earning $210 for a couple of hours of her time. You can check here to find one near you.
Do you have a side hustle? If not, there are so many options to make extra money depending on what your skills and interest are.
With the holidays coming up retailers (both online and brick & mortar) will be looking for part-time employees. If you have an existing car that is already paid off, extend the life of your car for as long as possible. This gives you more wiggle room to save money toward your next vehicle.
Once you’ve determined how to save and earn extra money, develop a budget for your new car. Consider the additional ownership costs mentioned above as well as taxes and any dealership/seller fees.
Once you’ve decided what you can afford and what you will be able to realistically save, it’s time to start your research. If you pay for a car in cash, it doesn’t mean you can’t get something nice.
Search inventory through local dealerships or online via sites like Cars.com or Autotrader. If you’re a USAA member, they have a car buying service and also provide member discounts from sellers. This allows you to compare multiple cars at once. Also, don’t be opposed to traveling for a better deal. Sometimes it’s worth it in the long run to go a few extra miles.
Shop For a Used (But Reliable) Car
New cars are beautiful, and new technology has made them very comfortable and convenient. The truth is a car is one of the worst places to put your money. They depreciate in value from the moment you leave the lot. Not to mention car accidents, which are steadily on the rise.
If your car gets totaled out, every dollar you’ve put into goes right down the drain. If you’re financing, not only is that money gone, but you now have to start from scratch paying off another vehicle. These are just a couple more reasons why owning your car can be better than financing.
Purchasing a used car can save you money. Used doesn’t mean bad or defective. There are plenty of reliable used vehicles on the market. For example, leased vehicles can be a great buy.
They tend to have fewer miles and are well maintained (due to the terms of the lease). They also are more likely to have one previous owner, which is a plus when purchasing used vehicles.
Also, consider private sellers. Private sellers who are motivated to sell in a hurry are good luck for buyers. Even if they’re not in a rush to sell, they can still offer a deal that’s better than going to a dealership.
Most sellers provide free copies of CarFax reports but defintely request one if it’s not offered. This will provide the big picture of the vehicle’s history (i.e. accidents, floods, salvage, maintenance, number of previous owners.)
Close the Deal
You have the cash, you’ve done the research, and found the car. Now it’s time to buy. Being able to pay for a car in cash gives the seller an incentive.
They don’t have to worry about financing and the paperwork that comes with it. Not to mention it’s a guaranteed sell. Use this to your advantage when negotiating. You don’t want to pay a new car price for a used vehicle, so don’t be afraid to haggle. Never tell the seller how much you’re willing to spend, as you will some advantage in your negotiation.
Take the vehicle to a mechanic for a full inspection. If a seller is unwilling to allow you to get the vehicle inspected, move on. You don’t want to end up with a lemon and have that hard-earned cash go to waste. An inspection before purchasing allows fully assessing the vehicle, and finding any potential issues. A car is an investment and should be treated as such.
Have you ever thought about paying for a car in cash?
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